Rand Paul tries to win over Silicon Valley

Senator Rand Paul, the Kentucky libertarian, faces a tricky challenge as he crisscrosses the country courting Republican moneymen for a potential presidential bid. Rocketed to national fame on the strength of his contrarian ideas, he’s now got to convince a skittish donor class that the same approach shouldn’t disqualify him if he seeks to carry the GOP’s banner in 2016. In many places, it’s meant twisting himself into pretzels to accommodate more traditional views, especially on foreign policy. Lucky for Paul, there is one corner of the map with both heaps of money and an appetite for investing in unproven startups founded on funky ideas: In Silicon Valley, the Senator is building something of a second home base.

We went behind the scenes of Paul’s whirlwind visit to the tech capital earlier this spring, then sat down with Paul back in his Senate office to talk about his wooing of the industry, for a story published online today and in the May 3 issue of the magazine.

It’s a high-stakes gambit for Paul, and he ups the ante by predicting a wholesale transformation of the liberal stronghold into a bastion of conservative support — provided, of course, the GOP chooses the right nominee. “I see almost unlimited potential for us in Silicon Valley,” Paul tells Fortune, positing the area is rife with libertarian Republicans “who may not know it yet.”

Paul allies say the Valley will feature prominently as a reference point for his broader economic vision, in which unbounded private enterprise creates vast wealth while tackling social needs. But first thing’s first: The area holds tremendous potential for its ten-figure personal fortunes that can single-handedly sustain a presidential bid in the new, anything-goes era of campaign finance. The wide-open Republican primary field underlines the urgency for contenders to assemble topflight national networks. Out in northern California, Paul has a jumpstart with the region’s band of techno-libertarians, like investor Peter Thiel, who spent more than $2.7 million supporting Paul’s father’s 2012 presidential bid without ever having met the candidate.

Paul is already tracing a more methodical path to winning tech support. The story details how Paul announced himself to the industry with a bang, by apologizing to Apple CEO Tim Cook last May during a Senate hearing intended to shame the corporate giant for its tax avoidance strategies. A week later, Paul made his maiden visit as an officeholder to the tech hub and met with a hero’s welcome. In the time sense, he’s forged connections to big-name investors: Marc Andreessen, Sean Parker, and Thiel himself. Though Thiel remains publicly uncommitted in the 2016 sweepstakes, he also once described his 2012 contributions to super PACs supporting Ron Paul as laying the groundwork for 2016, and it’s difficult to imagine somebody other than Senator Paul claiming that inheritance.

But just how natural is the affinity between Paul and Silicon Valley’s libertarian cohort? Paul’s privacy crusade, sharpened by the Snowden revelations, gave him common cause with tech CEOs outraged over government snooping into their consumers’ data. It was also the official basis of his latest West Coast jaunt – a speech at Berkeley railing against the federal surveillance regime’s abuses that earned him two standing ovations in the lefty epicenter. At the same time, Paul stakes out a potentially provocative position when it comes to the industry’s own responsibilities, telling Fortune that consumers need the power to sue tech companies who violate the terms of their user agreements. And other potential friction points lurk. Paul on his most recent trip attended a fundraiser cohosted by Joe Lonsdale, a Thiel acolyte and the founder of Palantir, whose data-sifting software won it startup funding from the CIA and work for the NSA. Paul himself dismisses any suggestion of an inconsistency, insisting he’s not “afraid of the loom” nor against spying, as long as it’s done within a strict legal framework.

Rand Paul: ‘I’m not afraid of technology’

Sen. Rand Paul, the libertarian-leaning Kentucky Republican and likely presidential contender, sat down with Fortune’s Tory Newmyer in April after his latest swing through Silicon Valley to talk about his efforts to build a base there. Edited excerpts:

You talked in Berkeley about how the Republican Party needs to acknowledge there’s something wrong with what it’s offering, the way Domino’s DPZ did with its pizza. What can Silicon Valley teach the Republican Party about making a better pizza?

I think there’s a big debate in any political party when they lose. We’ve lost twice at the presidential level, so everybody’s debating what should we do. Half the people say, “We believe too strongly in things and we need to dilute that message a little bit, be a little more like the Democrats or a little bit more moderate to win.” I’m of the opinion that with the things that are our core beliefs, we actually should be bolder. So for example, on believing in low taxes and less regulation, our last couple of candidates were for revenue-neutral tax reform — not sexy, not exciting, and really not destined to do too much to the economy other than shift the tax burden from one person to the other. Frankly, nobody is going to knock on a door for you if you’re saying, “Hey I’m for revenue neutral tax reform. Vote for me.” And so frankly on our core issues of taxes, regulations, balanced budgets, I think we should be more hardcore, or bolder than we’ve been.

But then we have to take our core message and find out other extensions of our message that might attract people if presented to them that haven’t been attracted to them in the past. So even on tax cutting, I think we should make the argument that the historical, government stimulus — Obama had one when he came into office, almost $1 trillion, $800 billion — that that kind of stimulus doesn’t work as well as if we’d cut taxes by $800 billion. They’re not equivalent. The reason they’re not equivalent is if you’re the economy and you give me $800 billion and I give it back, I’ve got to choose who to give it to. And the way business works is the vast majority of businesses fail. I use the statistic nine out of 10 — it may or may not be right, it may be eight out of 10. Whatever the number is, the majority of small businesses fail when they start. So if I give the money to you and say, “Start a Pizza Hut,” I’ll be wrong eight or nine times out of 10. But if you’ve already got a Pizza Hut and I gave you a reduction in taxes, I’ll be right 100% of the time. Give it to somebody who the consumer has voted upon.

What have you learned from your conversations with entrepreneurs like Peter Thiel and others in Silicon Valley?

Almost everybody I talk to out there from Peter on will say, “You know what? We think Silicon Valley is a little more libertarian than it is Democrat, even though 80 to 90% of the money went to President Obama.” And it’s been a deterrent to some Republicans going out there. Many more of them are libertarian-leaning Republicans than they are Democrats, and they may not know it yet. But actually most of them do know it. Frankly a lot of people who supported President Obama will say, “You know what? It turns out I am a lot more fiscally conservative than President Obama on taxes and regulation.” They’re not happy about either one of those. But they’re more moderate on social issues than the Republicans are.

You’ve got an apparent supporter in Joe Lonsdale. A company he co-founded, Palantir, got startup funding from the CIA venture fund to enhance the surveillance agencies’ ability to sort data. What would you say to civil libertarians who look at the capacity they’ve developed and say it presents the potential for problems?

I’m not afraid of technology. So I’m not like somebody who’s afraid of the loom. I’m not afraid of the light bulb. I’m not afraid of things like that. I am conscious of the fact the more technology you have, it could be abused, but I’m not against spying. I’m for spying if it is done within the confines of the Fourth Amendment. Which means you have to name the person, name what you want, ask a judge, and present probable cause.

Aside from spying, the Obama administration is in the midst of a big push to open up lots of data that they collect, with the windfall seeming bound for the Silicon Valley entrepreneurs who can commercialize it.

Most of the people I meet, including people who are associated with big data collection and mining software, to a person every one of them that I’ve met still wants the Fourth Amendment protected. And in fact the big news out of Silicon Valley that I read estimated $22 billion has been lost in Europe because of these revelations. I want Silicon Valley to be bolder. They’ve been for transparency, which means they’re going to tell us they’re spying on us. I don’t really care so much about that — I want them to stop spying on us. I’d like to see the big players out there be more active, more aggressive, support my lawsuit to stop the collection, not just to let us know they are collecting our stuff. Let’s stop the collection, and let’s acknowledge there are bad actors in the world, and we will go after them with real warrants. Couldn’t we for a while try the Constitution again and see if it works?

Are you concerned that a technology that right now uses open data to, say, help a person monitor their own energy consumption, could end up becoming something that allows government to regulate somebody’s energy consumption?

I think there will always be a marketplace for privacy. People will always want privacy. But the important thing that we have to do is not let Congress immunize everybody. And that’s what happened to the Patriot Act. They told everybody in technology that nobody can sue you if you break your privacy agreement. The privacy agreement should keep people safe. If I have a privacy agreement with a search engine — they look at my stuff, what I buy, and they anonymously sort me out to Zappos shoes, if I buy my shoes on Zappos, or a book on Amazon AMZN if I like a book. And I’m not opposed to technology and sharing. That’s how the Internet makes money. But when I was at Google GOOG I said, “You need to make sure that Gmail does not become interpreted someday as government mail. If they think you’re complicit with government, and they think the ‘G’ in Gmail stands for government, at that point in time, when there’s an action, there’s an overreaction.” If there’s privacy legislation to stop the government from doing this, they’re going to stop all the private people from doing this, too. And that’s the model they make money on. And I haven’t quite convinced enough people of this yet.

To me, if I were running their business model and I wanted to protect their business model from overzealous people who might lump them together with government, they need to be supporting what I’m doing as far as my lawsuit goes, because my lawsuit will help to differentiate between government and private. And I say it in all my meetings before all the people, I’m not for putting extra controls other than privacy agreements. So to get the marketplace to work and to protect privacy, while I’m not for suing business, you have to have the freedom to if they break their contract.

Is it true you’re examining how to accept Bitcoins as campaign contributions?

I was looking more at it until that recent thing. And actually my theory, if I were setting it up, I’d make it exchangeable for stock. And then it’d have real value. And I’d have it pegged, and I’d have a basket of 10 big retailers. Because I read [Marc] Andreessen’s article a couple months ago. What fascinated me about it was those 2 to 3% margins. If you multiply that out for all of Wal-Mart WMT and they don’t have to use Visa anymore, I’m guessing the people who have to be worried here are Visa V and Mastercard MA. I think it would work, but I think, because I’m sort of a believer in currency having value, if you’re going to create a currency, have it backed up by — you know, Hayek used to talk about a basket of commodities? You could have a basket of stocks, and have some exchangeability, because it’s hard for people like me who are a bit tangible. But you could have an average of stocks, I’m wondering if that’s the next permutation.